Digital and contactless payments have surged in the wake of the coronavirus and its attendant lockdown solutions. But while a cashless society has long been touted as our future, problems arise when you consider that there are still large numbers of people that remain unbanked or lack access to digital services.

Until that gap is bridged, cash will remain an important option for a wide range of people. However, if that divide continues to narrow, it’s possible there could be a software solution to the unbanked problem.

A digital solution to an analogue problem

Brad Goodall is CEO and co-founder of Banked, a fintech that’s trying to empower people and businesses to do more with financial data, starting with a payment initiation service that links merchants directly to bank accounts without a credit or debit card in between.

He believes that we cannot move to an entirely cashless society without addressing the needs of the unbanked. But he also suggests that fintechs could help provide a solution.

“One of the benefits with open banking and banks beginning to share more of their data and even their infrastructure, is that more people can have a go at problems like these,” he says.

“The reason there’s a barrier to entry with current accounts is they’re actually quite expensive to run for banks. Current accounts are loss leaders, they’re the milk and bread that get you into the shop so you might buy more expensive items.

“There’s no incentive to create bespoke current account solutions for incumbent banks. But with an open system, start-ups and businesses can create niche products for very specific audiences and make them profitable.”

An open banking system also pulls down the barriers for other bodies that may be interested in helping the unbanked, such as charities, government bodies or local councils.

Each of these interested parties could offer bespoke solutions for people who remain unbanked for different reasons.

Big brother banking

Banks and startups are also beginning to offer ancillary services around payments, including tracking your spending, helping you save and helping you to budget.

All of this is made possible by collecting and analysing transaction data and some believe it’s the next revenue stream for financial services.

Mobile-only banking app Monzo, for example, has a range of budgetary options around your spending. It can alert you to outgoings with mobile notifications and log your spending into a number of categories, from bills to transport to eating out.

You can then get graphic breakdowns of your spending to see where your money is going, and set up category budgets so Monzo will send an alert when you’re getting close to an overspend.

On the face of it, automated spending limits are an eminently practical way to keep yourself in line. But you have to wonder if everyone is willing to sign up to being bossed around by their bank.

Banked’s Goodall describes working on a proposition about saving, based on the high cost of regular habits such as takeaway coffee – expenditure over a 12-month period could amount to >£1000.

“What if we can find that they buy their coffee around 8am so we can send them a push notification that says: ‘Hey, why don’t you take a flask to work with coffee instead of buying it from Starbucks?’” questions Goodall.

“And the problem with that is, I wouldn’t know where to buy a flask for a start, I really need coffee in the morning, and making my own coffee sounds like the worst thing you could possibly advise me on!

“You can lose people by introducing so many unappealing elements that they get to a place where now they don’t want to see the push notifications.”

A nanny state approach can be off-putting for a lot of people, however Goodall sees huge potential in empowering people to manage their money by leveraging information about how they spend it.

Information is power

“Digital solutions still don’t have enough context yet,” explains Goodall.

“I can see on a banking app and a budgeting app that I’ve spent £500 at John Lewis, for example. But the apps don’t know if I spent £500 on children’s clothes or electronics or food from Waitrose in the basement. It just says that there’s John Lewis and a £500 transaction.

“Bringing the check-out data and the payment metadata to a place that is useful for a consumer, like a nuanced transaction history, is the holy grail that everyone’s searching for,” he says.

Brad Goodall, Banked

“Certainly, when we built our company, that was very much one of the reasons that we wanted to own the checkout flow. We wanted to access what a consumer actually bought so that we can send that information to a place that the customer thought would be helpful.

“To me, it would be much more helpful to know that I’ve spent a lot on electronics this year, but I don’t seem to have addressed my home insurance, so here’s a home insurance product for me. That would be more helpful than, hey, you can save a lot of money on coffee.”

Another potential use for transactional data is offering greater granularity for decisions on loans or other financial products. Your credit score is a somewhat blunt and antiquated instrument for assessing your ability to pay back money.

Today, more people work flexibly or are self-employed, they change addresses and even countries of residence with more ease and are unlikely to work for the same company steadily for decades.

Because people’s lives are more complicated than a credit score number, it’s more difficult to fairly assess their creditworthiness.

“We see a new model of data assessment cropping up in China already,” says Arunav Das, Head of Proposition & Commercialisation at HSBC UK.

“Banks have traditionally looked at around ten data points for loan assessments, but digital solutions can pull out 500 data points to make a decision.

“If we give that same cashflow data to commercial customers, they may be able to manage their inflows and outflows differently and find better ways to self-finance, or time borrowing and repayment more accurately.”

Trusting the system

Any time we talk about data and transparency, we also need to talk about trust. Digital solutions built on personal data need to offer enough upside to convince people to be happy to give up their information.

Banked’s Goodall says it’s all about user consent. He uses an app called Snoop that accesses transaction information to offer coupons and deals. For example, a discount code for pizza on a Friday night because that’s when he always orders for delivery.

“I was trying it out because I have some friends that are involved in the company, but it’s a big step to give away all my banking details and my transaction history and my balances,” he says.

“But they gave me instant reward for it and every 90 days I’ve got to reconsent, and I do reconsent because I’m regularly saving money.”

Das sees financial services companies as an obvious place to bank our data, trusting them with our personal information as we trust them with our cash.

“I think the trust is there. The future of banking is the safekeeping of data, as they have kept our money safe before now,” he says.

Arunav Das, HSBC UK

What FS marketers need to know

Trusted brands will always come out ahead. And creating that trust starts with how you communicate with your customers.

• Put customer needs first: It sounds obvious, but all too often, we rush to embrace digital solutions without considering the problem they are solving. As Brad Goodall’s example shows, not everyone wants to be told how to spend their money, but you’ll be hard pushed to find someone who doesn’t want to save some money. If you want customer buy-in on new services, you need to highlight the problem the services are solving in clear terms and tout the unique benefits of your brand’s digital revolution.
• Show that you’re three moves ahead: Forward thinking is a hugely valuable trait in the rapidly evolving digital world. Customers don’t want to constantly upgrade or change the way that they bank. Future proofing your technological innovations, and showing how they’re worth the investment for now and the medium to long term, will win over new and existing customers.

Editions Financial can help you embed trust in every communication, building and honing a brand purpose for your FS firm that shines through every connection with your customers.